Underpayment of tax

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Comments

  • RG2015
    RG2015 Posts: 5,895 Forumite
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    edited 12 October 2023 at 2:17PM
    molerat said:
    RG2015 said:

    I thought I understood this but am now questioning if I do.

    I see the process as follows but I happy to be corrected.

    Company pension   £20,000
    State pension            £9,000
    Total.                        £29,000
    Personal allowance £13,830
    Taxable income.      £15,170
    Tax at 20%.               £3,034
    It works out the same but the actual process is
    Personal allowance £12,570
    State pension            £9,000
    Tax Allowance            £3,570
    Company pension   £20,000
    Tax Allowance            £3,570
    Taxable income.      £16,430
    Tax at 20%.                £3,286
    Spouse Transfer           £252
    Tax  Due                     £3,034


    Thank you. I have to say that the way it is presented by HMRC is slightly different.

    How your tax-free amount is calculated

    Personal Allowance                                                               £12,570

    Additions

    Marriage Allowance received from spouse/civil partner         £1,260

    Total additions                                                                        £1,260

    Deductions

    Underpayment from previous year
    You underpaid £22 tax in a previous tax year                            £113

    State Pension                                                                          £9,631
    Total deductions                                                                      £9,744
    Your total tax-free amount                                                       £4,086

    This gives a tax code of 408M which is then applied to my company pension.

  • sheramber
    sheramber Posts: 19,002 Forumite
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    RG2015 said:
    sheramber said:
    If you received your state pension from April but your code was not changed until July , then you would not have paid tax on it from April to July. In that case you would have an underpayment for those months in 22/23. Your amended code would only result in the increased tax amount being collected once your pension payer operated the new code. If there was a delay in that happening then there would be a month/ months delay in collecting the correct amount of tax. HMRC would estimate the underpayment but would not know the exact amount until they finalised the pay and tax once they received the end of year figures from your pension payers. Any additional underpayment would be carried forward to 23/24. Code numbers are only an estimate. The final position is calculated after the end of the tax year. 
    Yes, this is what happened.

    My point is that all of the figures were known in January 2022. I was able to work out the exact amount of tax I needed to pay in 22/23

    I guess it is just the curious method used by HMRC that resulted in an underpayment for 22/23 that will only end up being collected in 24/25.
    But HMRC may not have  had notification of   the figure from DWP.
  • RG2015
    RG2015 Posts: 5,895 Forumite
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    sheramber said:
    RG2015 said:
    sheramber said:
    If you received your state pension from April but your code was not changed until July , then you would not have paid tax on it from April to July. In that case you would have an underpayment for those months in 22/23. Your amended code would only result in the increased tax amount being collected once your pension payer operated the new code. If there was a delay in that happening then there would be a month/ months delay in collecting the correct amount of tax. HMRC would estimate the underpayment but would not know the exact amount until they finalised the pay and tax once they received the end of year figures from your pension payers. Any additional underpayment would be carried forward to 23/24. Code numbers are only an estimate. The final position is calculated after the end of the tax year. 
    Yes, this is what happened.

    My point is that all of the figures were known in January 2022. I was able to work out the exact amount of tax I needed to pay in 22/23

    I guess it is just the curious method used by HMRC that resulted in an underpayment for 22/23 that will only end up being collected in 24/25.
    But HMRC may not have  had notification of   the figure from DWP.
    I knew the correct figures in January 2022 because DWP told me in a letter.

    HMRC changed my tax code in July so that is when DWP must have given them the correct figures.

    All I am saying is from receiving the figures in July 2022 it has taken HMRC 14 to 15 months to apply them to me correctly.

    Not exactly the picture of efficiency.
  • molerat
    molerat Posts: 31,801 Forumite
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    edited 12 October 2023 at 2:10PM
    With my case the code was promptly adjusted for the tax to be taken over 5 payments but due to early month payment dates there were only 4 paydays left in the year leading to an underpayment.
  • RG2015
    RG2015 Posts: 5,895 Forumite
    First Anniversary Name Dropper First Post Photogenic
    molerat said:
    With my case the code was promptly adjusted for the tax to be taken over 5 payments but due to early month payment dates there were only 4 paydays left in the year leading to an underpayment.
    I wonder if HMRC intentionally err on the side of caution to avoid people paying too much tax too early.
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